Issues

In 2008, Michigan lawmakers set in place a comprehensive energy policy designed to safeguard the state’s energy future.

That landmark reform – considered one of the best state energy policies in the nation – was crafted so each component worked in unison with the others. The main goals for this forward-looking package were ambitious:

Provide regulatory certainty so utilities could make substantial job-creating investments in the state’s energy infrastructure to provide customers with reliable energy from a balanced variety of energy sources and improve the environment

Boost the development of “green” energy by requiring 10 percent of the state’s electricity to come from renewable sources by 2015

The energy efficiency and renewable energy standards were coupled with sensible caps on the size and cost of the programs to limit the effect on customer bills

Improve the state’s business climate by requiring prices to be based on the cost of service by 2013 and phasing out subsidies that pushed up business rates

The 2008 energy law already is doing what it was designed to do, even though it’s not fully implemented.

The state’s two biggest utilities, Consumers Energy and DTE Energy, have invested nearly $4 billion in the state since the law took effect, creating thousands of jobs

Customers can expect to save more than $800 million because of the investments being made in energy efficiency programs. Utilities have participated in outreach efforts with business associations to inform companies about the incentives and cost-saving opportunities through these programs. Local businesses also have benefited because they’re heavily involved in these programs, which spur customer investments in energy efficiency products and services. The result is these programs have supported the creation and retention of countless jobs throughout Michigan.

The expansion of renewable energy resources is diversifying the state’s energy portfolio and creating economic growth, e.g., the first manufacturer of large-scale wind turbines has been established in the state, creating 200 jobs

Schools and other customers already are benefitting from the shift to cost of service rates with the full benefits for businesses to be fully realized by 2013

Today, Michigan is emerging from a deep recession that pushed down the customer demand for electricity. As the state’s economy recovers and energy needs rebound, Michigan already has in place the right public policy to make sure families and businesses have the reliable, affordable energy they need to power their future.

Why did we need energy reform in Michigan?

A 2000 law (Public Act 141) deregulated Michigan’s electric market. That law created a one-of-a-kind hybrid market that allowed all the customers of the major utilities to get their power from alternative energy suppliers, if they wished.

If customers switched to alternative energy suppliers, Michigan’s unique deregulation model also legally required utilities to take those same customers back at regulated rates whenever they wanted to return to full utility service.

That system left utilities not knowing how many customers they would be serving or how much power those customers would need and seriously undermined their ability to plan for the future.

The high level of uncertainty made it impossible for utilities to secure reasonable financing for major projects and improvements needed to serve customers, despite the growing need for substantial investments in the state’s energy infrastructure.

How did the 2008 energy law solve that problem?

A key provision of the energy reform law (Public Acts 286 and 295) retained competition in the state’s electric market and provided utilities the certainty they need to make major investments.

The law did that by reserving 10 percent of the state’s electric load for alternative energy suppliers. Regulated utilities, such as Consumers Energy and DTE Energy, retained the obligation to serve the remaining customer base.

The 10 percent reserved for the alternative energy suppliers typically is referred to as the Retail Open Access cap, or ROA cap.

How is the “ROA cap” working for Michigan?

Precisely as the law intended. The cap provides choice for customers who want to shop around, and provides certainty that utilities need to secure financing for major investments such as the recently announced $800 million upgrade of the Ludington Pumped Storage Plant.

The Ludington project and other substantial investments are expected to pump billions of dollars into the state’s economy, generate sorely needed tax revenues and create thousands of jobs in the coming years.

When the law took effect, alternative energy suppliers were serving 3 percent to 4 percent of the state’s electric load. The recession and new natural gas supplies pushed down customer demand and the price of power. In 2009, the 10 percent caps were reached for Consumers Energy and DTE Energy.

Once the cap has been reached, customers that wish to buy electricity from alternate suppliers must wait until other customers return to full utility service and space is freed up under the 10 percent cap.

So why not raise the ROA cap?

That’s a bad idea for a number of reasons and here are the main ones:

The 2008 energy law and the 10 percent ROA cap were the result of two years of research, analysis, and discussion by a diverse group of stakeholders, including business groups, labor, alternative energy suppliers, environmental and customer groups and the utilities. The various components of the package were designed to work together and reflect compromises and commitments made by all those involved in the negotiation.

The 10 percent ROA cap protects customers. Raising the cap would shift fixed costs to customers who remain with the utilities. Consumers Energy and DTE Energy estimate that increasing the cap to 25 percent would shift about $800 million in fixed costs to the remaining customers, primarily residential and small commercial and industrial customers.

At 10 percent, the ROA cap already has shifted about $330 million in fixed costs to the customers getting full service from Consumers Energy and DTE Energy.

Only a relative handful of business customers would benefit at the expense of all the other customers. For example, only about 500 of Consumers Energy’s 1.8 million electric customers now get their power from alternative energy suppliers.

The alternative energy suppliers are primarily out-of-state power brokers trying to use short-term market conditions to undermine solid long-term energy policy so they can maximize their profits. They have few employees and minimal investment in Michigan and no long-term commitment to the state. They’re just playing the market.

These suppliers cloak their efforts under the guise of “competition.” They conveniently ignore the fact that in 2008, when 100 percent of the state’s electric market was open to them, they served only 3 percent to 4 percent of that market.

The alternative energy suppliers aren’t talking about true competition. They avoid many of the costly mandates that utilities must meet, such as low-income and senior citizen discounts, and don’t have to accept all customers, including the bad credit risks, as the utilities do.

The truth is that customer demand, power supplies, natural gas prices and other factors determine market prices rather than the form of “competition” pushed by the alternative energy suppliers.

Michigan can’t sustain a coherent long-term energy policy based on the vagaries of the volatile short-term wholesale markets. Raising the ROA cap when market prices dip equates to having no cap at all. If the ROA cap is increased, utilities would have to cut back the substantial job-creating investments they are making now in Michigan.

What can I do?

Continue to support the 2008 energy reform law (PA 286 and PA 295) and explain its benefits to others. This landmark public policy already has provided benefits to customers and the state, even though it’s not fully implemented. At the very least, this law should be fully implemented and its benefits fully analyzed and evaluated before any changes are discussed.

The answer is clear: This forward-looking public policy should be allowed to work as intended and help power Michigan’s economic comeback.

Why is Michigan’s 2008 Comprehensive Energy Policy so important to the people of our state?

Because it protects Michigan families and businesses from budget-busting price spikes by establishing a long-term plan for generating power right here at home.

Saves families and businesses millions through energy-efficiency programs that help reduce energy use.

Eliminates subsidies so customers pay their true cost of service.

The members of the MJEC know that the comprehensive state energy policy established in 2008 safeguards the state’s energy future and provides clear benefits to families and businesses. The forward-looking energy policy provides Michigan with a solid framework to:

Having an adequate supply of reliable power is critical for businesses that are expanding in Michigan or bringing jobs to the state. For Michigan to successfully keep and attract jobs, businesses must be sure their power needs will be met.

The 2008 energy policy created a business-friendly environment by laying the foundation for utilities to make substantial, job-creating investments in Michigan.

Since the 2008 comprehensive energy policy was enacted, the state’s two biggest utilities – DTE Energy and Consumers Energy – have invested more than $4 billion in the state.

Because of the new policies created under the 2008 acts, utilities have been able to attract the lowest borrowing rates in the history of their companies – which means lower energy costs for Michigan.

In addition to expanding the state’s “green” energy supply, the 10 percent standard also encourages job-creating investments in the developing renewable energy industry.

The 10 percent portfolio standard is also attracting wind and solar component manufacturers to Michigan, which means more jobs for Michigan.

As Michigan seeks to diversify its economy, the strong market for renewable energy technology gives businesses in this emerging industry the certainty they need to make major job-creating investments in Michigan.

3) Develop energy efficiency programs to help families and businesses use energy more efficiently and save money.

Through aggressive energy efficiency standards, Michigan’s comprehensive energy policy has driven the creation of thriving “energy optimization” or energy-saving programs where utilities work with customers to save energy and money. These programs have also supported the creation and retention of countless jobs in Michigan by spurring local investment in energy efficient products and services, which have been installed by Michigan workers.

The cheapest kilowatt is the one not used. As Michigan conserves energy, the need for more power is minimized, saving Michigan energy customers billions over the long run.

Since the comprehensive energy policy was enacted, the state’s two biggest utilities – DTE Energy and Consumers Energy – have invested more than $175 million in “Energy Optimization” efforts, helping consumers save more than $800 million over the lifetime of the energy efficiency measures installed.

4) Improve the state’s business climate by basing rates on the cost of service.

For decades, electric rates for Michigan businesses were higher than the cost to serve them. The difference between their rates and the actual cost of service subsidized residential rates.

The comprehensive energy policy leveled the playing field for Michigan businesses by eliminating the longstanding subsidy that businesses paid to keep residential rates down. The law requires rates to be based on the actual cost of service by 2013, which will lower business rates and improve the state’s business climate.

Rates were stabilized and price spikes were minimized by eliminating short-term, market volatility.

Ten percent of Michigan’s power market is reserved for alternative energy suppliers. This limit was established to allow customers who were on “choice” programs to continue, but helped stabilize energy bills for Michigan families and businesses. The limit also gives Michigan utilities the certainty needed to make substantial investments in the state’s energy system.

The 10 percent Choice Cap minimizes the amount of fixed utility company costs that need to be spread to their remaining customers. When customers choose to purchase their power from an Alternative Energy Supplier, their share of a utility company's cost get spread to the remaining customers. In effect, a utility's remaining customers subsidize the ability of a small number of customers to exercise choice options.